In our last post we highlighted more of the key issues associated with the seven-step process for Value Focussed Supply as identified in CAPS’ recent report on “Linking Supply to Competitive Business Strategies”, and the issues associated with the middle steps in particular. In this post, we will tackle the rest of the issues that need to be addressed if an organization is going to answer the questions necessary to formulate a good VFS strategy as part of a Next Generation Sourcing effort.

1. Evaluate and Select Strategic Supply Options
   • Which suppliers have excess capacity, modern equipment, or innovation capabilities that the organization can take advantage of?
   • Will products be built to order, built JIT, or built in bulk and stored at key distribution points? Or will hybrid methodologies be used, where subassemblies are built in economic order quantities, and then assembled and delivered JIT? Will inventory be handled in house, by a 3rd party, or by a partnership?
   • Can the organization change the way the supply market operates or alter consumer market dynamics by way of one or more available supply options?
2. Identify and Implement Levers
   • Which of the following can change the market dynamics?
     • alternate sources of supply
     • non-traditional markets
     • market / organizational restructuring
     • change of ownership, location, or M&A
     • change in supply base, distribution structure
     • introduction of new competitive tension into the consumer or supply markets
     • a new, segmented, supply chain
   • Which of the following can change what is bought?
     • product simplification or standardization
     • design changes
     • disruptive technologies
     • customer aligned customization
     • demand reduction / elimination
     • innovation on demand
   • Which of the following can change supplier interaction?
     • volume levels
     • investment
     • supplier development program(s)
     • (joint) process integration
     • performance-based rewards
     • target costs / pricing
     • intellectual property management
     • (more) relationship management

Once all of these issues have been addressed, the organization will be in a good position to answer all of the questions required by each step of the VFS process designed to enable an organization to select the right strategies that will create true, long-term, value in the supply chain.

In a future series, we will address how the process can be integrated into a larger Supply Management framework.

In our last post we highlighted some of the key issues associated with the first three steps of the seven-step process for Value Focussed Supply as identified in the CAPS recent report on “Linking Supply to Competitive Business Strategies”. In this post, we will tackle more of the issues that need to be addressed if an organization is going to answer the questions necessary to formulate a good VFS strategy as part of a Next Generation Sourcing effort.

1. Evaluate the Company’s Strategic Options
   Now that the categories that are central to the current and future business plan are identified, the truly strategic categories and products need to be identified.
   • What are the relevant macro and micro factors that need to be considered? Four types of data will be required to identify these:
     1. Customer Focus
        What are the price to value ratio, overall value chain performance metric, and attributes critical to market success?
     2. Purchase
        What are the specs, cost drivers, technology roadmaps, the anticipated rate of (technology) change, usage patterns, product life cycle, and (amortized) annual spend?
     3. Supply Market
        What are the degree of competition in the supply base, pricing trends (and [raw material] cost drivers), cost structures, supply industry dynamics, major users, and government regulations?
     4. Supplier Data
        What are their business strengths, risk exposure, capabilities, and performance levels?
   • What type of analysis can be brought to bear on the data? Value chain mapping? (Should) Cost and Cost Driver modelling? Cost-to-Outcome Analysis? Segmentation analysis? Risk/Reward Analysis? TCO/TVM (Lifetime) modelling? Purchase pattern (trend) analysis? (Competitor) Supply (Strategy) benchmarking? Revenue Forecasts? Economic Forecasts? Scenario Planning?
   • How will truly strategic categories be identified?
     Most critical problems? Highest TCO? Lowest Value to Cost Ratio? Highest margin (potential)? Supply uncertainty and/or risk? Inventory / asset utilization (or lack thereof)? (Market) Leadership requirements?
2. Set Holistic Value Focussed Goals
   • How will the top priorities be determined?
     Most critical problems? Highest potential ROI? Implementation difficulty (of new strategies)? (Potential) Future impact? Available value contribution from suppliers?
   • How will the goals be set?
     Where will the primary focus be: the organization, the supply base, or the distribution partners? How will the various goals be weighted: metric improvement, revenue improvement, cost reduction, sustainability, and/or future value?
   • How will the performance levels be tracked and measured?

Our next post will highlight the remaining key issues that an organization must address to insure that it heads down the right VFS path.

In our last post we reviewed some of the key questions for each step of the seven step program designed to get a company on its way to VFS, as described in the CAPS recent report on “Linking Supply to Competitive Business Strategies”. When these questions are answered, an organization will have identified one or more target markets, primary categories, key products, key suppliers, VFS strategies for the categories, products and markets (w.r.t. the supply base), VFS goals, and VFS levers.

However, before an organization can answer the key questions, it needs to understand the issues involved as this will make the difference between good choices and bad choices. In this post, we will outline some of the key issues for some of the key questions to insure that an organization embarking on a VFS journey as part of their Next Generation Sourcing effort heads in the right direction.

1. Understand Customer & Supplier Markets
   • The VFS team needs to dive deep into each category. For example, knowing that cell phone sales are on the rise isn’t good enough. Burner phones or smartphones? iOS, Android, Windows 7, or Blackberry? The ones that integrate with Facebook, Twitter, or both? When a category is on the rise, it’s usually a small set of products, and, in particular, products with certain feature sets that are causing the surge in demand.
   • Then the team needs to ask if those products are satisfying all of the customer desires or only part of them. Maybe the users want more than a built-in Facebook app. Maybe they want an app that will integrate Twitter feeds, Facebook wall feeds, and other Social Network messaging feeds and group them by contact.
   • Then, once a need has been identified, the team needs to ask if one or more of the organizational suppliers has the capability to assist the organization in the innovation if the organization doesn’t have the skills in-house. If there are no app developers on staff and all of the organizational suppliers are hardware only, then the organization would have to acquire a new set of capabilities or new supplier to either develop the apps the users want or the platform and API to support third party apps.
   • If the organization expects this category to considerably increase sales, does it have access to the raw materials necessary to make more smartphone handsets and the development resources to build and support the software?
2. Identify Directional Changes
   • Look beyond market share to market trends. For example, iOS phones may be commanding a majority market share in the smartphone market, but Android sales are now exceeding iOS sales and Android may be the dominant platform by the time a new smartphone is designed and released.
   • But maybe instead of developing a new phone, the organization should be developing a new pad. Pad sales are expected to skyrocket, and the fact that so many companies are planning to release Android pads indicates no one has figured out what is going to conquer the Android pad market. And maybe the real key to success is a pad that could support Android apps and Win 7 apps through a hardware VM.
   • Apple has locked up over half of the touch screen supply, limiting the potential supply base. Can the organization lock up enough supply to meet expected demand and/or identify a new supplier who could manufacture touch screens, with investment and support, if the organization decided to try and increase its smartphone or pad market share?
3. Link Insights into Directional Changes to the Business Strategy
   • Is the business strategy greater market share or greater profit on existing market share? If it’s the first, the strategy will be to go after the greatest demand at a lowest common denominator. If it is the latter, the strategy will be to dominate a niche market that demands higher prices at current volumes.
   • Once the market share strategy is determined, it will be important to select the categories and products with the best financial outlook that fit into the market share strategy.

Our next post will highlight more of the key issues that an organization must address to insure that it heads down the right VFS path.